CBDT enters into 18 Advance Pricing Agreements

Central Board of Direct Taxes (CBDT) entered into 18 Advance Pricing Agreements (APAs) including three Bilateral APAs (BAPAs) in March 2019. These 18 APAS cover international transactions in sectors pertaining to manufacturing, software development services, other services, royalty payment for technology and brand, trading and payment of interest. With this, total number of APAs entered into by CBDT so far has increased to 271, including 31 BAPAs. In FY 2018-19, CBDT had signed 52 APAs, including 11 BAPAs

Advance Pricing Agreement (APA)

It is agreement entered between taxpayer and tax authority determining Transfer Pricing methodology for pricing tax payer’s international transactions for future years. In this case, transfer pricing is setting of price for goods and services sold between related legal entities or subsidiaries within enterprise.

APAs can be of three types

Unilateral: It involves only taxpayer and tax authority of country where taxpayer is located.

Bilateral: It involves tax payer, associated enterprise (AE) of taxpayer in foreign country, tax authority of country where taxpayer is located and foreign tax authority of AE.

Multilateral: involves taxpayer, two or more AEs of tax payer in different foreign countries, tax authority of country where taxpayer is located and tax authorities of AEs.

India’s APA scheme

It was launched by Government aims to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance. Its provision was introduced in Income-Tax (IT) Act, 1961 in 2012. Further rollback provision was added to in 2014. It aims gives certainty to taxpayers (including MNCs) agreed by them on certain principles in valuation of their cross-border transactions. It also provides them with alternate dispute resolution mechanism with respect to transfer pricing.

Benefits of APA

It helps in determining arm’s length price of international transactions in advance for max period of five future years.

It provides certainty with respect to tax outcome of tax payer’s international transactions.

It also seeks to strengthen Government’s resolve of fostering non-adversarial tax regime.

It has significantly contributed towards improving ease of doing business in India.

India’s APA regime is appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.